An ex post comparative evaluation of office rent prediction models

Commercial property is regarded by many as functioning in a relatively inefficient market, so that opportunities exist to earn abnormal gains through the exploitation of information which is not reflected in prices. Property portfolio managers therefore rely to some extent on predictions or forecasts of future commercial property market performance as a tool to aid investment decisions. This paper seeks to conduct an ex post comparative evaluation exercise for “consensus” office rent models in the UK, common explanatory variables being derived from a literature review and from a survey of practitioners’ operational models. Three alternative valuation based rent indices are used as the dependent variables. Models are selected and ranked according to historic fit and used to predict five years ahead given perfect foresight. The paper finds that the best fitting models are not the best predicting models. Generally there is no relationship between the predictive rank of a model and the fit rank of a model